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Thailand Floods Could Affect Cloud Computing

Photo by Amy DanielsonThe flooding in Thailand will hamper the supply of storage devices for online services.

Thailand is under water, and as a result, some Internet companies could be facing problems.

Flooding in the country has now shuttered more than 1,000 factories — some of which make computer hard drives. The government has warned that waters could continue to rise until the end of the year. When the rains do finally stop, it is estimated that factories could take months to clean up computer equipment damaged by floods and to re-calibrated tooling.

The impact on PC makers has been widely discussed. The cost of hard drives is expected to rise as makers scramble to secure supply. But it could have a wider impact on every company that stores data in the cloud. Facebook, Google, Microsoft and Amazon all of depend on storage devices in data centers. The same is true of the thousands of companies that stream music or store music. Apple, for example, recently introduced iCloud, its online storage software that can back up music, photos and documents online. As demand for those services rise, they need more storage, which will be hard to come by in the coming months.

“You really can’t grow and expand the Internet without the expansion of storage hard drives,” explained John Monroe, research vice president at Gartner. “There are an awful a lot of ramifying impacts that are being incompletely considered here.” He noted that if Google and Facebook, for example, cannot gain access to enough high-capacity hard drives for Internet storage, the Web could suffer major problems.

Analysts estimate that hard drive manufacturers will ship 50 million fewer drives than usual over the next two quarters. Seagate, which makes hard drives, has warned that the number could be even higher.

“By the first quarter of next year, all worldwide inventories of hard drives will be sucked dry,” Mr. Monroe warned. “This is a crisis of escalating dimension for many I.T. revenue streams.” Mr. Monroe said that the impact from the flooding are yet to be felt across the industry.

“The main point here is we do not yet know what we do not know,” he said. “For example, we don’t know when the flood waters will recede; we don’t know the extent of the damage to plants and machines; we don’t know how long it will take to get factories back online.”

“Computer companies, including Toshiba, Apple and Acer, are going to have to ask other component-makers to reduce pricing on things like DRAM and graphics chips to help offset the increase price from hard drive production lost to the flooding,” said Fang Zhang, a storage analyst at IHS iSuppi.

“The hard drives in PCs have been built and shipped up until December,” explained Ms. Zhang. “Customers will not feel an impact until the first quarter of next year.”

Ms. Zhang said the loss of production from Thailand’s flooding will reduce the production of hard drives by 30 percent, or 50 million drives. “It will primarily effect Apple, Acer and others who might be forced to ship drives by air instead of by sea after factories in Thailand race to clean and recalibrate their tools.”

Component makers in China, the Philippines and Malaysia could pick up some of the slack, but many global hard drive makers are already operating at over 90 percent production, with some in China at 98 percent.